The Reserve Bank of India released the first set of regulations for digital lending on Wednesday in an effort to counter the rise in online fraud and illegal activity.

The regulatory framework of the Reserve Bank is centered on the digital lending ecosystem that consists of the Regulated Entities (REs) of the RBI and the Lending Service Providers (LSPs) that are employed by them to extend various permitted credit facilitation services.

Also Read| Snapchat setting stage to lay off employees

The borrower’s bank account and the regulated entity must be used exclusively for all loan disbursals and repayments under the new regulations. No pass-through or pool accounts of the lending service provider or any other party are permitted.

REs must ensure that they, as well as the LSPs they employ, have a suitable nodal grievance redressal officer to handle FinTech/digital lending-related complaints. Complaints against their respective DLAs must also be handled by such a grievance redressal officer. The contact information for the Grievance Redressal Officer shall be prominently displayed on the RE’s website, its LSPs, and DLAs, as applicable.

According to current RBI guidelines, if a borrower’s complaint is not resolved by the RE within the stipulated period (currently 30 days), he or she may file a complaint with the Reserve Bank – Integrated Ombudsman Scheme (RB-IOS).

Data gathered by DLAs must be needed-based, have transparent audit trails, and be used only with the borrower’s express prior consent.

Borrowers may be given the choice of accepting or declining consent for the use of specific data, as well as the option to revoke previously granted consent, in addition to the choice of having their data deleted by the DLAs/LSPs.

The controlling authority may consider constructing regulations on digital lending based on the recommendations of WGDL with regard to entities authorised to carry out lending pursuant to other statutory provisions but not regulated by RBI.

Also Read| Hootsuite latest to be hit by layoffs amid Silicon Valley’s recession fears

The WGDL has recommended specific legislative and institutional changes that the Central Government should take into account in order to stop these entities from engaging in illegal lending that is not authorised by any statute.

Through the use of digital lending, novel approaches to the creation, distribution, and servicing of credit products have gained popularity. However, some worries have also surfaced that, if not addressed, could erode the public’s confidence in the ecosystem of online lending. The main issues are unrestrained use of third parties, mis-selling, privacy violations, unfair business practises, charging of astronomical interest rates, and unethical recovery methods.

Also Read| FIRs against Nupur Sharma clubbed and transferred: Here’s what it means

On January 13, 2021, the Reserve Bank established the Working Group on “Digital Lending, including Lending through Online Platforms and Mobile Apps” (WGDL). A regulatory framework has been established, taking into account the feedback from a wide range of stakeholders from WGDL, to support the orderly expansion of credit delivery via digital lending techniques while easing regulatory concerns.